Netscout Systems Reports Financial Results For Second Quarter Fiscal Year 2013

NetScout Systems, Inc. (NASDAQ: NTCT):
    Q2 FY 2013
GAAP     Non-GAAP
Revenue $84.5 million     $84.7 million
Net income $9.9 million $14.4 million
Net Income per share     $0.23     $0.34

NetScout Systems, Inc. (NASDAQ: NTCT), an industry leader for advanced application and service assurance solutions, today announced financial results for its second quarter of fiscal year 2013 ended September 30, 2012.

“We had good second quarter results, with strong bookings driving year-over-year non-GAAP revenue growth of 17%. Overall, we made good progress with the first half of fiscal year 2013 with total new business bookings up 15% over last year, despite the current global economic headwinds,” said Anil Singhal, President and CEO of NetScout Systems. “We are on track with product development and enhancements to our product suite in support of our Unified Service Delivery Management strategy. We continue to win significant new projects in the service provider space as wireless carriers continue to adopt our market leading IP solutions to help them manage the delivery of critical services over next generation architectures. We are progressing according to plan with the integration of technologies we acquired from Accanto Systems in our quest to provide our customers with a complete solution supporting legacy voice, Voice over IP and next generation VoLTE network environments.” In addition, said Mr. Singhal, “Based on our solid first half results, we are reaffirming our annual revenue guidance and raising the low end of EPS guidance for fiscal year 2013.”

Total GAAP revenue for the second quarter was $84.5 million; non-GAAP revenue was $84.7 million. A reconciliation of GAAP and non-GAAP results is included in the attached financial tables.

Product revenue for the second quarter, on a GAAP and non-GAAP basis was $46.2 million. Service revenue on a GAAP basis was $38.4 million and non-GAAP service revenue was $38.5 million.

GAAP net income for the second quarter was $9.9 million, or $0.23 per diluted share. GAAP income from operations was $16.9 million. On a non-GAAP basis, net income for the quarter was $14.4 million, or $0.34 per diluted share, and non-GAAP income from operations was $23.8 million.

Financial Highlights:

For the second quarter:
  • GAAP revenue increased 16% year-over-year and increased 11% sequentially. Non-GAAP revenue increased 17% year-over-year and increased 11% sequentially.
  • GAAP and non-GAAP product revenue increased 21% year-over-year and increased 15% sequentially.
  • GAAP and non-GAAP service revenue increased 11% year-over-year and increased 6% sequentially.
  • GAAP operating margin was 20%, up four points from 16% a year ago and up 9 points sequentially. Non-GAAP operating margin was 28%, up five points from 23% a year ago and up 11 points sequentially.
  • As of September 30, 2012 cash and cash equivalents and short and long-term marketable securities were $235.6 million, down $3.6 million from $239.2 million as of the end of the prior quarter. Since March 31, 2012 cash and securities increased $22.1 million.

In addition:
  • During the quarter NetScout acquired assets and technology from Accanto Systems, based in Modena Italy, providing service assurance products for telecommunications service providers which enable carriers to monitor and manage the delivery of voice services over converged, next-generation telecom architectures. The acquisition will broaden NetScout’s capabilities for legacy voice environments and for next generation network voice services, including Voice over IP (VoIP) and Voice over Long Term Evolution (VoLTE).

Guidance:

For fiscal year 2013, we are reiterating the GAAP and non-GAAP revenue guidance issued on April 26, 2012. We expect GAAP and non-GAAP revenue to be in the range of $340 million to $355 million. We have raised the low end of GAAP net income per diluted share to be in the range of $0.94 to $1.00 and non-GAAP net income per share to be between $1.24 and $1.30.

For fiscal year 2013, the non-GAAP net income per diluted share expectation excludes the acquisition accounting adjustment to fair value of approximately $300 thousand for deferred revenue, forecasted share-based compensation expenses of approximately $9.5 million, estimated amortization of acquired intangible assets of approximately $7.3 million, compensation for post combination services of approximately $1.2 million, restructuring charges of approximately $1.1million, business development charges of approximately $1.2 million and the related impact of these adjustments on the provision for income taxes of $7.6 million.

CONFERENCE CALL INSTRUCTIONS:

The Company invites shareholders to listen to its conference call today at 8:30 a.m. ET, which will be webcast live through the Company’s website at http://www.netscout.com/investors. Alternatively, people can listen to the call by dialing (866)701-8242 for U.S./Canada and (763)416-6912 for international callers and using conference ID: 39732679. A replay of the call will be available after 11:30 a.m. ET on October 18 for approximately one week. The number for the replay is (855)859-2056 for U.S./Canada and (404) 537-3406 for international callers. The conference ID is: 39732679.

Use of Non-GAAP Financial Information

To supplement the financial measures presented in the Company's press release in accordance with accounting principles generally accepted in the United States ("GAAP"), the Company also presents non-GAAP measures relating to revenue and net income per diluted share. Non-GAAP results eliminate the GAAP effects of acquisitions by adding back revenue related to deferred revenue revaluation and removing expenses related to the amortization of acquired intangible assets, the GAAP effects of stock-based compensation, and restructuring charges. Non-GAAP results also exclude certain expenses relating to acquisitions including compensation for post combination services and business development charges. Non-GAAP results also exclude the related impact of all these adjustments on the provision for income taxes.

These non-GAAP measures are not in accordance with GAAP, should not be considered an alternative for measures prepared in accordance with GAAP, and may have limitations in that they do not reflect all of NetScout’s results of operations as determined in accordance with GAAP. These non-GAAP measures should only be used to evaluate NetScout’s results of operations in conjunction with the corresponding GAAP measures. The presentation of non-GAAP information is not meant to be considered superior to, in isolation from or as a substitute for results prepared in accordance with GAAP.

The Company believes these non-GAAP financial measures will enhance the reader’s overall understanding of NetScout’s current financial performance and the Company's prospects for the future by providing a higher degree of transparency for certain financial measures and providing a level of disclosure that helps investors understand how the Company plans and measures its own business. The Company believes that providing these non-GAAP measures affords investors a view of the Company’s operating results that may be more easily compared to peer companies and also enables investors to consider the Company’s operating results on both a GAAP and non-GAAP basis during and following the integration period of the Company’s acquisitions. Presenting the GAAP measures on their own would not be indicative of the Company’s core operating results. Furthermore, NetScout believes that the presentation of non-GAAP measures when shown in conjunction with the corresponding GAAP measures provide useful information to management and investors regarding present and future business trends relating to its financial condition and results of operations.

Company management regularly uses supplemental non-GAAP financial measures internally to understand, manage and evaluate its business and to make operating decisions. These non-GAAP measures are among the primary factors that management uses in planning and forecasting future periods.

About NetScout Systems, Inc.

NetScout Systems, Inc. (NASDAQ: NTCT) is the market leader in Unified Service Delivery Management enabling comprehensive end-to-end network and application assurance. For 28 years, NetScout has delivered breakthrough packet-flow technology that provides trusted and comprehensive real-time network and application performance intelligence enabling unified assurance of the network, applications and users. These solutions enable IT staff to predict, preempt and resolve network and service delivery problems while facilitating the optimization and capacity planning of the network infrastructure. NetScout nGenius ® and Sniffer ® solutions are deployed at more than 20,000 of the world’s largest enterprises, government agencies, and more than 148 service providers, on over one million physical and 2,000 virtual network segments to assure the network, applications, and service delivery to their users and customers. For more information about NetScout go to www.netscout.com.

Safe Harbor

Forward-looking statements in this release are made pursuant to the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended and other federal securities laws. Investors are cautioned that statements in this press release, which are not strictly historical statements, including without limitation, our financial guidance for fiscal 2013, and the expected effect of the acquisition of Accanto Systems' assets and technology, constitute forward-looking statements which involve risks and uncertainties. Actual results could differ materially from the forward-looking statements. Risks and uncertainties which could cause actual results to differ include, without limitation, risks and uncertainties associated with slowdowns or downturns in economic conditions generally and in the market for advanced network and service assurance solutions specifically, the Company’s relationships with strategic partners, dependence upon broad-based acceptance of the Company’s network performance management solutions, the Company’s ability to achieve and maintain a high rate of growth, introduction and market acceptance of new products and product enhancements, the ability of the Company to take advantage of service provider opportunities, competitive pricing pressures, reliance on sole source suppliers, successful expansion and management of direct and indirect distribution channels and dependence on proprietary technology and the ability of NetScout to successfully integrate Psytechnics, Fox Replay, Simena and Accanto Systems, and achieve operational efficiencies. For a more detailed description of the risk factors associated with the Company, please refer to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2012 on file with the Securities and Exchange Commission. NetScout assumes no obligation to update any forward-looking information contained in this press release or with respect to the announcements described herein.

©2012 NetScout Systems, Inc. All rights reserved. NetScout and the NetScout logo and nGenius are registered trademarks of NetScout Systems, Inc.

               
 
NetScout Systems, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
 

Three Months EndedSeptember 30,

Six Months EndedSeptember 30,
  2012     2011     2012     2011  
Revenue:
Product $ 46,162 $ 38,080 $ 86,424 $ 67,611
Service   38,383     34,544     74,482     68,309  
Total revenue   84,545     72,624     160,906     135,920  
 
Cost of revenue:
Product 10,330 9,061 20,400 16,708
Service   6,611     6,516     13,404     12,765  
Total cost of revenue   16,941     15,577     33,804     29,473  
 
Gross profit   67,604     57,047     127,102     106,447  
 
Operating expenses:
Research and development 15,201 11,160 29,278 22,480
Sales and marketing 26,743 26,854 56,892 53,626
General and administrative 6,975 7,037 13,532 13,571
Amortization of acquired intangible assets 645 494 1,231 976
Restructuring charges   1,153     -     1,066     -  
Total operating expenses   50,717     45,545     101,999     90,653  
 
Income from operations 16,887 11,502 25,103 15,794
Interest and other expense, net   (116 )   (835 )   (472 )   (1,234 )
Income before income tax expense 16,771 10,667 24,631 14,560
Income tax expense   6,861     3,616     9,713     5,110  
Net income $ 9,910   $ 7,051   $ 14,918   $ 9,450  
 
 
Basic net income per share $ 0.24 $ 0.17 $ 0.36 $ 0.22
Diluted net income per share $ 0.23 $ 0.17 $ 0.35 $ 0.22
Weighted average common shares outstanding used in computing:
Net income per share - basic 41,695 42,258 41,718 42,433
Net income per share - diluted 42,344 42,720 42,400 43,061

               
 
NetScout Systems, Inc.
Reconciliation of Current GAAP to Current and Historical Non-GAAP Financial Measures
(In thousands, except per share data)
 

Three Months EndedSeptember 30,

Six Months EndedSeptember 30,
  2012     2011     2012     2011  
 
GAAP Revenue $ 84,545 $ 72,624 $ 160,906 $ 135,920
Deferred revenue fair value adjustment   133     20     271     40  
Non-GAAP Revenue $ 84,678   $ 72,644   $ 161,177   $ 135,960  
 
GAAP Gross profit $ 67,604 $ 57,047 $ 127,102 $ 106,447
Deferred revenue fair value adjustment 133 20 271 40
Shared-based compensation expense (1) 153 88 268 200
Amortization of acquired intangible assets (2) 1,485 1,099 2,902 2,197
Business development and integration expense (3)   -     -     -     4  
Non-GAAP Gross profit $ 69,375   $ 58,254   $ 130,543   $ 108,888  
 
GAAP Income from operations $ 16,887 $ 11,502 $ 25,103 $ 15,794
Deferred revenue fair value adjustment 133 20 271 40
Shared-based compensation expense (1) 2,532 1,788 4,779 3,947
Amortization of acquired intangible assets (2) 2,130 1,593 4,133 3,173
Business development and integration expense (3) 474 1,502 831 2,104
Compensation for post combination services (4) 442 - 814 -
Restructuring charges   1,153     -     1,066     -  
Non-GAAP Income from operations $ 23,751   $ 16,405   $ 36,997   $ 25,058  
 
GAAP Net income $ 9,910 $ 7,051 $ 14,918 $ 9,450
Deferred revenue fair value adjustment 133 20 271 40
Shared-based compensation expense (1) 2,532 1,788 4,779 3,947
Amortization of acquired intangible assets (2) 2,130 1,593 4,133 3,173
Business development and integration expense (3) 474 1,871 831 2,473
Compensation for post combination services (4) 442 - 814 -
Restructuring charges 1,153 - 1,066 -
Income tax adjustments (5)   (2,330 )   (2,004 )   (4,242 )   (3,299 )
Non-GAAP Net income $ 14,444   $ 10,319   $ 22,570   $ 15,784  
 
GAAP Diluted Net income per share $ 0.23 $ 0.17 $ 0.35 $ 0.22
Share impact of non-GAAP adjustments identified above   0.11     0.07     0.18     0.15  
Non-GAAP Diluted net income per share $ 0.34   $ 0.24   $ 0.53   $ 0.37  
 
Shares used in computing non-GAAP diluted net income per share 42,344 42,720 42,400 43,061
 

(1)

 

Share-based compensation expense included in these amountsis as follows:
Cost of product revenue $ 66 $ 41 $ 115 $ 88
Cost of service revenue 87 47 153 112
Research and development 742 525 1,386 1,102
Sales and marketing 808 607 1,526 1,377
General and administrative   829     568     1,599     1,268  
Total share-based compensation expense $ 2,532   $ 1,788   $ 4,779   $ 3,947  
 

(2)

 
Amortization expense related to acquired software and producttechnology included in these amounts is as follows:
Cost of product revenue $ 1,485 $ 1,099 $ 2,902 $ 2,197
Operating expenses   645     494     1,231     976  
Total amortization expense $ 2,130   $ 1,593   $ 4,133   $ 3,173  
 

(3)

 
Business development and integration expense included inthese amounts is as follows:
Cost of service revenue $ - $ - $ - $ 4
Research and development - 31 - 58
Sales and marketing - 98 - 126
General and administrative 474 1,373 831 1,916
Other income (expense), net   -     369     -     369  
Total business development and integration expense $ 474   $ 1,871   $ 831   $ 2,473  
 

(4)

 

Compensation for post combination services included in theseamounts is as follows:
Research and development $ 442   $ -   $ 814   $ -  
 

(5)

 

Total income tax adjustment is as follows:
Tax effect of non-GAAP adjustments above at 38% $ (2,608 ) $ (2,004 ) $ (4,520 ) $ (3,661 )
Discrete tax adjustment   278     -     278     362  
Total income tax adjustments $ (2,330 ) $ (2,004 ) $ (4,242 ) $ (3,299 )

       
 
NetScout Systems, Inc.
Consolidated Balance Sheets
(In thousands)
 

September 30,2012

March 31,2012
 
Assets
Current assets:
Cash, cash equivalents and marketable securities $ 229,990 $ 196,872
Accounts receivable, net 28,895 69,795
Inventories 8,343 8,021
Prepaid expenses and other current assets   19,055     14,999  
 
Total current assets 286,283 289,687
 
Fixed assets, net 16,505 16,457
Goodwill and intangible assets, net 237,365 225,069
Deferred income taxes 13,908 17,892
Long-term marketable securities 5,615 16,644
Other assets   2,095     2,008  
 
Total assets $ 561,771   $ 567,757  
 
 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 8,344 $ 7,539
Accrued compensation 22,228 23,050
Accrued other 9,689 10,009
Deferred revenue   79,750     93,493  
 
Total current liabilities 120,011 134,091
 
Deferred tax liability 1,961 1,410
Other long-term liabilities 5,212 7,175
Accrued long-term retirement benefits 1,873 1,990
Long-term deferred revenue 18,393 18,722
Long-term debt   62,000     62,000  
 
Total liabilities   209,450     225,388  
 
Stockholders' equity:
Common stock 49 48
Additional paid-in capital 245,882 237,289
Accumulated other comprehensive income 793 212
Treasury stock, at cost (70,173 ) (56,032 )
Retained earnings   175,770     160,852  
 
Total stockholders' equity   352,321     342,369  
 
Total liabilities and stockholders' equity $ 561,771   $ 567,757  

Copyright Business Wire 2010

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